Many prime borrowers are falling behind in their mortgage payments now. Just remember this is not a prime or subprime issue. The main problem with housing is affordability. The only reason house prices went up was because people bought houses they could not afford.
When house prices are going up, delinquency issues do not come up as people who can not afford their house can sell them or refinance them.
Now in this market, many can not resell or refinance as the borrowing standards are much more strict then before and with falling house prices many can not refinance because they are upside down in Home Equity.
Another change is the change in psychology. With the recent 60 minute report on people walking away from their houses, more and more people are walking away from their house rather than try to make the mortgage payments. This was confirmed by Ken Lewis of Bank of America.
An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter's college tuition."The whole plan was to get out" before his rate reset, he said. "Now I am caught. I can't sell my house. I'm having a hard time refinancing. I've avoided bankruptcy for months trying to pull this out of my savings.Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage."Still, Mr. Doyle does not regret refinancing in 2004. "My goal was clear: I wanted to help my daughter go through college," he said. "It wasn't like it was for
You feel sorry for Mr. Doyle because he was using it for daughters tuition. But at the same time, you have to wonder whether you want a hanging sword of refinancing hanging on your head. Did he not realize he was gambling on refinancing?
I guess he did not want her to take out college loans because this would have been cheaper.
About 7.1 percent of auto loans were in trouble, up from 6.1 percent. Personal bankruptcy filings, which fell significantly after a 2005 federal law made it harder to wipe out debts in bankruptcy, are starting to inch up.On Monday, Fitch Ratings, the debt rating firm, reported that credit card companies wrote off 5.4 percent of their prime card balances in January, up from 4.3 percent a year ago. The so-called charge-off rate is still lower than before the 2005 law went into effect.
Remember that credit cards might be the next ticking time bomb.
"You don't mind making a $2,000 payment when the house is going up" in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn't refinance or sell. "When it's going down, it becomes a weight around your neck, it becomes an anchor."
Walking away.
Thank you Alan Greenspan for creating the bubble and ruining many lives.
No comments:
Post a Comment